Our friends, Andrew Dietz and Mira Leonard, over at Creative Growth Group were kind enough to allow us to contribute some thoughts on thought leadership to their blog “Growing Professional Services“.

You can read the piece here.

Andrew also has a spot-on post on the over-used term “Trusted Advisor”.

This article was originally published in the July/August 2008 edition of MarkeTrends the publication of the Association for Accounting Marketing

If a job’s worth doing, it’s worth doing well.  So if a sales pipeline is worth having, how do you know if it’s working well?  Welcome to the world of sales pipeline measurement.

In industries with dedicated business to business sales forces, for example software or capital equipment, sales pipeline measurement is serious business!  Management is focused on measuring progress towards revenue targets, particularly when there are quarterly earnings expectations to be met, and sales professionals are focused on hitting their targets to achieve sales commission levels and bonuses.

Management and sales stars have learned that sales success results from discipline, focus and measurement throughout the sales process.  CPA firms can learn a lot from the hard-won insights that other sectors have applied to the measurement and management of their sales pipelines.

Here are five key elements of sales pipeline measurement that should set you on the path to sales success.

1.    Determine your measures:

The first step is to decide what to measure.  There is no single definitive or perfect set of measures. Businesses typically use a range of measures.  Here are a number of commonly used measures that you should consider:

These measures can be calculated and reported at the firm level, practice level, office level, individual partner level or any other level that makes sense for your firm.

2.    Set Targets

Once you have measures, you need to set targets. How big do you want (or need!) your pipeline to be?  Think about how these measures inter-relate.  If your revenue target is $10m and your conversion rate is 10% (hopefully not!) you would need $100m in new opportunities.  Do you want to set a pipeline value target of $100m or instead set a pipeline value target of $20m and a conversion rate target of 50% to achieve your $10m revenue goal?  And how do you want to achieve that $10m - 10 x $1m projects or 100 x $100k projects?

3.    Gather the Data

One of the often learned lessons of any kind of performance measurement is that it’s a lot easier to decide on the measure than it is to actually measure it.  In CPA firms the challenge is often getting the partners to provide information on the opportunities they have and hence to be able to measure the sales pipeline.  Here’s one technique that regularly works to get the data coming in.  Publish the metrics based on whatever data you have and when someone points out the numbers are wrong or missing enlist their help in getting you the right data.

4.    Report the Metrics

There’s no point in defining measures, setting targets and gathering the data if it doesn’t get reported.  Here’s a checklist for reporting your sales metrics:

• Determine who should receive sales metric information - and whether different people should receive different information
• Determine how often they should get it.  Monthly? Weekly? Daily?
• Determine how they should receive it.  Delivered to their e-mail (and perhaps not looked at) or presented at a weekly sales pipeline meeting?
• Determine the sales metrics report format.  The simpler and clearer the information the more likely people will act on it

5.    Link To Accountabilities

All of this work will amount to nothing unless ultimately there is accountability for the firms results and hence accountability for the sales metrics that indicate progress towards revenue.  The buck needs to stop with someone for ensuring there are sufficient opportunities in the pipeline or for improving opportunity conversion rates.  It is vital that firm leadership buys into the sales pipeline process and assigns accountability for sales results and the related sales metrics.   To make this stick, firm leaders may need to build sales metrics into the performance objectives and performance evaluation of practice leaders and individual partners.

Finally, remember that keeping score is something CPA’s intuitively understand.  Use this fact to your advantage by using sales pipeline metrics to engage practice professionals in underlying sales pipeline activities.

I believe that for professional services firms (PSF’s) to achieve sustained growth they need, just like in any other industry, a deep understanding of their competition.  We also believe that this is a significant blind spot for PSF’s - one that we are focused on helping our clients address.

If you are like a lot of firms your competitor knowledge may not go much beyond an ad hoc list of competitors and some anecdotes about their practice strengths or recent wins.  If that’s the case, the following list of questions might help you start to gather and organize what you know - and what you don’t know - about your competition.

1. Who are our competitors?
2. Who might be our next competitors?
3. What are our competitors points of differentiation?
4. How are our competitors marketing their services?
5. What’s our win/loss performance against our key competitors (and why)?
6. Which areas are our competitors focused on growing?
7. What significant moves have our competitors made in terms of new practice areas, client groups or markets?
8. Who and how are our competitors recruiting?
9. Which alliances or partners do our competitors work with to enhance their marketing or delivery capabilities?
10. How does our competitors financial performance compare to our own?

We’ll look at some of these questions in more detail going forward - both in terms of what’s involved in answering the question and what you do with your answers.

Does your firm have detailed answers to all these questions - and if not, where are your blind-spots?

Bruce MacEwen at Adam Smith, Esq. makes some great points about the need for challenging and validating new market entry plans in order to increase your chances of success. But it got me thinking about the ways in which professional services firms (PSFs) go about entering new markets (and about how many firms have robust plans that can actually be properly challenged). My thinking was further stimulated by a discussion yesterday with a client at a boutique tax firm that is grappling with the right approach to building out a new practice area.

Just to be clear I am considering new markets to be either geographic, service/practice area, or client type/industry.

In my experience PSF market entry approaches seems to fall into three, not necessarily mutually exclusive, categories which I’ll call accidental, incremental and strategic.

• Accidental is when the firm wakes up one day and realizes “hey we seem to have ended up with a bunch of clients in the cleantech space” or “we have a lot of clients asking us for assistance with setting up employee Health Savings Accounts” - perhaps we should focus on this market.
• Incremental is when the firm, has an instinct or some data that suggests a particular market might be attractive and decides to dip its toe in the water, perhaps by allowing a partner to devote a percentage of their time to targeting the market.
• Strategic is when the firm makes a clear decision, backed up by significant investment of resources (and hopefully a business plan) to enter a market.

I’m curious as to which of these categories is the most common in professional services. My experience suggests that accidental and incremental approaches predominate and that strategic approaches are rarer (perhaps because they selectively follow accidental or incremental starts to market entry). I also suspect that strategic approaches are most common with geographic market entry since it’s difficult to accidentally or incrementally target a new country or city hundreds of miles away. Conversely its often relatively easily to dip your toe into a new service line or industry, particularly if they are adjacent to existing practice areas.

I’m also pondering whether any of these approaches is inherently better. We might assume that strategic approaches are the way to go and that any relative lack of strategic approaches in professional services reflects the low risk and low investment appetite of the firms. But there are plenty of examples in other industries of accidental and incremental market creation (think text messaging in the mobile industry for example) and innovation experience (see Google) shows that rapid testing and development of new ideas can often be better than grand strategic designs.

What do you think? Is one approach more common than the other? Is one approach better than the other?

The answer to that question is probably quite a lot, but I want to focus on the recommendation engines that are such an important part of Amazon and Netflix’ success.  Michael Schrage has an excellent article in the May/June 08 edition of Technology Review that discusses the strengths and weaknesses of existing recommendation engines.  The technology is interesting here, but I’m more interested in the underlying principle of recommendation engines i.e., that someone who bought x might also be interested in y.

Applying this thinking to professional services isn’t difficult - a client that needs an audit, might also need tax compliance, a client that needs acquisition due diligence might later need post merger integration support. But just because some of these related services are obvious doesn’t guarantee that they are offered to clients.  And not all recommendations may be intuitively obvious.  Just as customers who bought Neil Diamond’s latest CD also bought Mariah Carey’s latest CD (it’s true - I just looked it up on Amazon) so might clients that used your IP attorneys also use your employment attorneys.

One of the challenges in professional services firms is cross-selling, getting folks in one practice to promote to the services of another practice area.  Amazon and Netflix have the advantage that their recommendation engine is a piece of software - free of the individual motivations and organizational barriers that can hamper referrals inside a firm.  Firms that have embraced key account management or cross-functional client service teams are likely doing a better job of this than most - but how many firms are leaving revenue on the table through the absence of an effective recommendation engine.

I have no doubt that there would be a powerful ROI in giving someone the responsibility for mining data on the range of services that specific clients buy and actively working with client relationship leads to make clients aware of how the firm has served clients with similar profiles and needs.